The Erongo Regional Electricity Distributor Company

Published Date: 02 Nov 2017

Table 1: Erongo RED Business Units

OPERATIONS

System availability

Staff sufficiency

Financial compliance of BU

Quality of Supply

NETWORK SUPPORT SERVICES

System capacity adequacy

Design and planning integrity

COMMERCIALSERVICES

Quality of Service

Metering & Revenue protection

Energy Management

Billing and customer service

Tariffs

FINANCE & CORPORATE SERVICES

Financial System and Reporting performance

Financial Risk performance

Credit Control

The author of the document operates from the Commercial Services Business Unit hence the marketing plan is formulated for such a unit. As indicated in Table 1 above. The said Business unit is more involved with the client; therefore customer service and the quality thereof remain our first priority. Additional to the above are the factors that link the utility and the customers and these includes, Metering and Revenue Protection, Energy management, Billing and Tariffs.

However, the existing Revenue Protection methods is partially limited by the old Technology performance and this drawback has a direct effect on the utility’s revenue protection and collection that affect the business economics of the company. Therefore the need to Implementation the Revenue protection as part of Erongo RED financial sustainability was identified. It is therefore evident that there is a need for the development of a best network infrastructure to improve the methods to identify losses value chain, the quantification of losses, and an integrated approach required to minimise such losses. Based on the above mentioned, the main marketing plan question of the assignment can be formulated as follows:

How can a controlled new technology based equipment be realistically implemented to improve the methods to identify losses value chain, the quantification of losses, and an integrated approach required to minimise such losses and address the drawbacks that are being experienced with the existing conventional and digital metering in order to achieve a fast, reliable, efficient and innovative better solutions for Revenue protection and minimize instability in power systems metering, that result in efficient revenue collection?

Analysis of the Situation

Erongo RED operates in areas under significant social pressures created by low household incomes, significant unemployment, and poverty. This applies equally to rural settlements, and to towns and villages in the Erongo RED service area. The company has a relatively high urban population compared to rural population which is an advantage for the company in that it makes it easier and less costly to serve a large percentage of the population with metered grid-connected electricity service. It has some 27,500 households (population of some 107,000) in its area of which some 5,500 consumers are rural, and 22,000 are urban. At present, Erongo RED services in excess of 50,000 existing connections, most of which are in urban areas. At the same time there is a significant demand for new connections from the same sector of the population, and it is important for Erongo RED to ensure that this demand is met. The consumer consumption growth varied between 4% and 6% for the past five years.

Current Marketing Situation

Currently the existing metering is based on the old technology and both the workers and the customers are not buying into the move of introducing the new technology. It is well believe from the customer’s point of view that the new system is expensive and will not be affordable.

On the other hand within an organization there is an element of comfort zone among certain individual that are not willing to learn something new, with the mentality that if something is working then don’t touch it until it breaks down. The above on its own is already a major threat and can sabotage the technology development process that will result in the entire approach to achieve the utility financial sustainability collapsing.

Since the aim of the marketing plan is to maximize the revenue collection, further analysis is carried out as indicated in the SWOT analysis Table below.

Table2: SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

New Technology at Low costs

Utility Income is based on availability of metering only

Improve our operations, customer relation& education

Customers not interested in the introduction of new technology

Experienced personnel

We have to hunt down electricity theft through an audit

Resistance from company employee

Funds availability

identify losses value chain and Maximize revenue protection

quantification of losses minimize such losses

Secure more new contract with Customers & Maximize profit sustainability

Marketing aim and objective

The continuity of revenue protection is of significant importance in maintaining reliability in revenue collection system. For this reason, the new metering technology will be employed as the consumption metering tool in most of our customer premises. Differentiating between conventional and smart metering is still a challenging problem in a utility industry as a result the proposed marketing plan is also aimed at educating all parties about this problem using the public platform in order to clearly explain this problem to all customers reliably and accurately to avoid discouraging information that are currently in existence.

Aim

To implement a best possible new technology-based metering system to prevent, reduce, eliminate or recover the loss of revenue due to theft, non-payment or any other similar root-causes, for services supplied without causing any friction between the utility and the clients.

Objectives

Being one of the most important components in commercial Services, an effective Revenue Protection and recovery program will help to recover revenue lost to utility theft and customer fraud, prevent future revenue from being lost and it can help to improve customer relations in the Erongo RED licensed area. The objectives therefore include developing a holistic approach method to determine the impact on future cash flows such as:

Develop business economic modelling (BEM)

To seeks a socially acceptable solution to implement the new technology

Develop loss quantification model

Reduce technical losses and non-technical losses

Increase the collection efficiency

Increase operational efficiency

Increase in the number of customers

Monitoring and reporting

Target Market

Revenue Protection is each person’s responsibility to prevent Erongo RED revenue lost, as it is a watchdog for the utility in terms of revenue. It is therefore that employees support and public participation is required to protect the revenue of the RED. This makes the employees and public (from Erongo region) the two main customers.

Market Selection and Segmentation

We target two segments and these two segments are Erongo RED employees and the public or Electricity consumers within Erongo Region.

Erongo RED Employees

It is the responsibility of individual employees, sections and Business Units to contribute and support in every aspect to make Revenue Protection successful. Relevant sections and Business Units should form an alliance with Revenue Protection section. In addition to that there are specific Business Units, such as Finance and Operation Business Units including Law Enforcement institutions that needs to closely work together with the Revenue Protection section.

Public or Electricity Consumers

In terms of electricity consumers, we target the following existing customers as group according to their demand and other characteristics:

Commercial / Business

Industrial / LPU

Domestic / Residential

Rural

Target Market Segment Strategy

Our strategy focuses on implementing the smart metering technology that is affordable, accurate, and theft proof, which enable efficient revenue protection and recovery that in the end results in utility financial or commercial sustainability. Before and after launching the technology, we will remain in regular contact with our valuable customers through numerous media platforms that include social media public meetings and email or web marketing. After launching this technology we will be able to eliminate 98% of the losses and provide safe, sustainable and economical electricity to the majority of the Erongo Region population.

Target Market: Erongo RED Employees

Utility financial or commercial sustainability means that the utility can maintain its operations, where the cash returns from operations maintain a positive balance. Cash received from operations should be sufficient to pay for all cash expenses, including normal expansion programs, debt repayments and alike. The employee’s will be expected to monitor the following in order to achieve our goals:

Any steps or actions taken to prevent, minimize, eliminate or recover the loss of revenue due to theft, non-payment or any other similar root causes, for services supplied.

Any principle or practice of protecting the environment and the communities to be safe from harm, injury or electrocution from unauthorized use of electricity on accounts of the service provider.

In order to maximize revenue, the utility should improve cash collections by reducing cash losses, and limit non-technical losses. Another method of maximizing revenue is by increasing tariffs, but this must be the last resort.

Any reduction in technical losses will lessen the cost of energy available for sale, and reduction in non-technical losses can improve revenues and/or reduce distribution cost. Technical losses are normally supplied by the most expensive distribution, if a least cost distribution strategy is followed. By decreasing technical losses, one will directly reduce the cost of the most expensive distribution and therefore enhancing the cash flow and the sustainability of the utility as a whole.

Revenue protection is a holistic approach utility should take and can be defined as all those activities that guarantee that losses are minimised, from both the revenue and cost perspective.

The above is best described through the losses value chain, shown in Figure 1 below:

Figure 1: Losses value chain

Energy losses are the difference between energy that is available for distribution, and the energy billed to end customers and is given by the sum of technical and non-technical losses. Cash losses are the difference between cash collected and the true sales (in Dollars) to end user customers.

Technical losses are due to the loading and electrical characteristic of the electrical network. Non-technical losses are that are caused by factors outside the electrical system. This could include inaccurate meters, inaccurate meter readings, billing errors, errors in record keeping, consumption by non-metered installations and energy theft. Free basic electricity is included in sales.

From management point of view, it is essential to follow the BEM that has been established (as monitoring and reporting framework) to be able to monitor the various KPI's that track losses. The typical KPIs to be monitored are as follows:

Energy input (EI) – energy available for distribution in kWh

Energy billed (EB) – obtained from the billing system in kWh

Overall energy losses (OL) – the difference between EI and EB in kWh

Overall energy losses percentage - overall energy losses divided by EI,

Technical losses

Maximum demand losses as a percentage of maximum demand

Energy losses as a percentage of energy input.

Needs and Requirements

Most senior employees are always reluctant to change. New and young employees will be employed and undergo extensive training well in advance. Both soft skills and technical training will be offered. In addition to the above is the customer care training as a healthy relationship between the workforce and the end user customer need to be established.

Competitive Forces

There are many companies, Local Authorities and Municipalities that want to take over the supply of electricity in the region. However most of them are not capable due to skills shortage. Our unique metering technology is also an advantage because it will limit all kind of losses, inaccurate meter readings, billing errors, errors in record keeping, consumption by non-metered installations and energy theft. This will result in cheap and affordable electricity which will attract more customers.

Communications

Communication must first starts at home, among employees at different levels. We will then influence social media and public meeting. These platforms are widely used by most customers in our demographic market. We will also make announcements through regular tweets and updates to our fan page on Facebook and company website.

Keys to Success

Most manual function such as meter reading will be replaced by a click of a button due to the application of the new metering technology. Elimination of inaccurate meter readings, billing errors, errors in record keeping, consumption by non-metered installations and energy theft will be an advantage. Electricity token will be available from different platform such as vending machines, cell phone, ATM and by using the meter itself. All the above including affordable electricity will result in commercial or financial sustainability.

Target Market: Public or Electricity Consumers

In terms of electricity consumers, the existing customers (Business, LPU, Domestic and Rural) are grouped according to their demand and other characteristics.

Needs and Requirements

Although these customers are grouped under different categories, their needs are the same, which is the desire to buy electricity at a very cheap price.

Erongo Region community sees the provision of electricity is an opportunity for them to live better. Therefore, any delays in the provision thereof are seen as denials of their privileges and even to prolong their poor living conditions, hence fraudulent use of electricity are seen as a proactive way of taking charge of their quest for a better living. It is concluded that each consumer expects his demand for electrical energy to be met at any time of the day or night. He may close his house or plant but on his return expects to be able to switch-on all equipment without prior notice to the supply company.

Communications

Alliance is a strong corporate governance tool to carry out resolutions. The Revenue Protection section will bring all the role-players to form an alliance to protect and recover Erongo RED revenue.

Community education on safe use of electricity is the most important factor as far as reasonably practicable. Pamphlets and leaflets are in process including media to provide effective community education.

Keys to Success

It is vitally important to know that with the implementation of Revenue Protection policies, existing customers, prospective customers and all stakeholders in the industry will have the right attitudes towards electricity. The way forward is mainly to start to and continuously educate the community and make them aware of safe use of electricity, develop a sense of ownership and adopt culture of payment for services.

Marketing Plan Strategy

For the first twelve (12) months the electricity tariffs structure will remain the same and only the new metering technology will be implemented. Domestic customer will remain on step or block tariffs as indicated below in Figure 2.

1st 250 units

251 – 750 units

750 + units

N$1.60

N$ 1.34

N$1.20

0

Figure 2: Domestic customer Block Tariffs

Large power user (LPU) will be on Time of Use (TOU) tariffs. This will allow the company to witness its success in reducing losses while maximizing revenue protection and recovery through the implementation of the new technology. Table 3; indicate large power TOU, time slots.

Table 3: TOU time slots

The following strategies should be applied to achieve financial sustainability:

Reduce technical losses from 20 to 9 % and non-technical losses from 6, 5 to 2, 0%.

Increase the collection efficiency from 92% to 98%

Collection of old debtors over a period of 4 year.

Increase operational efficiency by 60%. This implies the increase in the number of customers.

Introduction of additional step tariffs above the inflationary tariffs to cater for the increased investment program not covered by inflationary tariffs.

Progress monitoring and reporting.

Expense budget summary

The technology implementation budget was prepared separately from the marketing budget. Marketing expenses are typically for staff required to do the marketing activities. Table 4 below indicate the expenses.

Table 4: Expenses

Expenses

Value in N$

Staff Recruitment and Training

200 000.00

Customer Education

50 000.00

Advertising material

150 000.00

Project Implementation

3500 000.00

Project launching

90 000.00

Total

3990 000.00

Sales Forecast

The sales will increase as the revenue losses are decreasing and the recovery is increasing. Another factor that will contribute to the increase in sales is the affordability of electricity and the results of effective customer education. It is also noted that the sales increase will reflect in the first two months of the implementation.

Progress Measurement and Monitoring

Management will use the Business Economic Model (BEM) that has been established (as monitoring and reporting framework) to be able to monitor the various KPI's that track losses. The typical KPIs to be monitored are as follows:

Energy input (EI) – energy available for distribution in kWh

Energy billed (EB) – obtained from the billing system in kWh

Overall energy losses (OL) – the difference between EI and EB in kWh

Overall energy losses percentage - overall energy losses divided by EI,

Technical losses

Maximum demand losses as a percentage of maximum demand

Energy losses as a percentage of energy input.

Benefit of the Application

A general comparison between the existing conventional metering approach and the proposed new technology metering approach is summarized and shown below in Figure 3. As clearly shown by the graph, it is evident that there is no way one can achieve benefits without any costs involved, Figure 3. A true reflection of a complete view of cost justification of the new metering technology does not just depend on the price of the device. It should be noted that benefit are received as systems are used and not only when they are purchased. Therefore the initial cost of the new metering technology are high but does not rise excessively due to their benefits that includes, the reduction of operation and maintenance costs as well as improved service quality and the overall availability of electricity.

Existing Conventional metering approach

New technology metering approach

Purchase

Pay back

COST

TIME

BENIFIT

Figure 3: Cost justification graphical representation

Conclusion

In conclusions, it is very important to know that the implementation of Revenue Protection policies, existing customers, prospective customers and all stakeholders in the industry must have the right attitudes towards electricity. The way forward is to start and continuously educate the community and make them aware of safe use of electricity, develop a sense of ownership and adopt culture of payment for services.

Additional to the above is the need to follow a holistic approach, whereby all the various utility activities are modelled, to determine the impact on future cash flows in order to achieve financial sustainability. This should also include business economic modelling, network modelling, loss quantification modelling and monitoring and reporting for the utility to have direction.